Monday, January 09, 2012

Spain Pushes the Consumer "Reset" Button

Spain, like Italy, and especially Greece and Ireland, is in the throes of an austerity purge. Some 64% of working Spaniards now take home about a thousand Euros per month. For a country that was riding high for the past two decades, that's a big hit.

Spanish consumers have responded by embracing what's called "low-cost shopping." And some observers claim that, if and when Spain's economy bounces back (don't count on it), the lessons being learned today will live on.

“Compulsive and disproportionate shopping is a pathological condition that we frequently encounter. On the other hand, saving, even in a compulsive way, doesn’t figure in any medical handbook,” says Guillermo Fouce, Doctor of Psychology and professor at the Universidad Carlos III (Madrid). No one is pathologically thrifty. This is not a trivial remark, since any pattern of consumption taken to the extreme can lead to problems.

No doubt, the consumer in the post low-cost shopping era will differ from the consumer of today. First, he will have learned some lessons. “The buyer is finding that low-cost shopping helps him purchase similar articles at lower prices. And anyone who wants to sell things more expensively these days may as well close up the shop,” declares Javier Vello, responsible for Distribution and Consumption at the PricewaterhouseCoopers. Secondly, “after the crisis the client will look more closely at their money and will be more aware of what is behind each item,” Vello anticipates.

Which will have consequences. Little by little, it will be harder to build up a profile of the consumer, and business strategies will be greatly influenced by the trend. Some consumers, for example, may buy cheaply for certain products, but when it comes to other products the very same people, with the same purchasing power, may go for the most expensive items.

Whether things work out this way remains to be seen, however. In the meantime, the low-cost concept is spreading fast and wide. “The consumer has gone from looking for what I call a 'superior functionality' to looking for the 'good enough functionality', which is cheaper. In other words, why should I buy a car with all the extras if I don't really need them?” asks Javier Rovira, a professor at the ESIC Business and Marketing School.

What I find interesting in this EuroPress report is that it reveals how adaptable Western consumers are in the face of necessity. Much of the suffering underway in Western Europe resulted in large part from governmental mismanagement but other forces will cause a much broader, perhaps even global, shrinkage in per capita production during this century. We're running out of stuff, especially food and water, and we face the sort of global stability threats that may disrupt supply lines that we're utterly dependent upon and so it's likely we may all be required to live smaller, more frugally. What the Spanish seem to be demonstrating is that it's not too hard to learn those habits and the market does respond.